No-bid 'emergency' contract could cost $965 million

AUSTIN - Texas health officials last year used the firing of the state's contractor for processing Medicaid claims to justify giving a no-bid "emergency" deal for more money to a company whose lobbying team included several former appointees of then-Gov. Rick Perry, records show.

The company, management consulting firm Accenture, which was removed from a similar project here in 2009, was the biggest subcontractor under the fired vendor. It was not running Medicaid claims processing for any other state.

Although the company received the contract on an emergency basis, shielding the deal from review boards and competitive bidding requirements, it got a three-year term with options for two more years, according to records obtained by the Houston Chronicle.

The options make the contract worth up to $965 million, with an annual value of $192 million –14 percent more than what fired vendor Xerox made last year.

The deal also includes far fewer performance benchmarks: Xerox was sacked for not meeting some of the 249 performance requirements in its contract, but the agreement with Accenture includes just 39 requirements.

Stephanie Goodman, a spokeswoman for the Texas Health and Human Services Commission, which awarded the contract, described it as a logical decision to elevate the top subcontractor to allow the continuation of Medicaid services during a competitive rebidding of the contract. The price increase was due to new requirements in the Affordable Care Act, she said, and the reduction in performance rules was due to a streamlining of metrics.

Goodman would not release information about the status of the bidding process or say why it would take three years, citing a need for secrecy to ensure fairness.

Several experts told the Chronicle that procurement for a project as complicated as Medicaid claims processing need not take three years - especially because records show the state started laying the groundwork to transition the contract in 2011.

The state health commission announced the emergency deal last May, but had not mentioned many specifics about the contract, which is among the most lucrative in Texas government.

Lawmakers in recent weeks have heavily scrutinized another health commission contract for a $110 million Medicaid fraud detection system from Austin technology company 21CT, which has triggered a criminal investigation and forced four resignations.

Many of the same questions

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The deal with Ireland-based Accenture appears to raise many of the same questions.

In addition to being awarded without competitive bidding to a company with questionable experience, the contract also involves potential conflicts of interest - in this case Accenture's lobbying team, which includes former Perry health care adviser Chris Britton, former state health commissioner Don Gilbert and former state employment commissioner Mary Scott Nabers.

Company and state officials said none of the trio took part in contract negotiations.

Still, lawmakers expressed concern over the deal. Several recalled how Texas had to fire Accenture from its last major contract, an $899 million pact inked in 2005 for operating call centers to determine eligibility for benefits such as Medicaid. It was booted after being unable to address rising backlogs or produce promised savings.

"That project was seen as a waste of $1 billion, so I'm surprised that the State of Texas would bring Accenture back in, particularly if they weren't experienced in that space," said Rep. Garnet Coleman, a Houston Democrat who serves on the House Public Health Committee. "It's not as if it's a purely unique space in Medicaid - there are many people who provide this service all over the country."

There were eight entities - Accenture not among them - running Medicaid claims processing for 43 states in December 2013, according to the Centers for Medicare & Medicaid Services. Seven states ran their own systems.

The contracts are highly sought after because of their value and prominence.

A lead contractor is responsible for receiving, processing and, in some cases, approving millions of reimbursement requests from doctors and other health care professionals that provide services to Medicaid recipients. Texas spends about $30 billion per year on Medicaid, which is funded roughly equally by the state and federal governments.

The claims processing system here, which started in 1967, has experienced its share of tumult. It has been run by three different lead contractors since 1996, according to the state.

Affiliated Computer Systems, which later would be bought by Xerox, won the contract in 2004 after a bidding process that took less than two years, state records show. It also won a competitive process in 2008 that took a little more than two years.

Problems started surfacing soon afterward. After a series of news reports and audits found that Texas was spending more on Medicaid orthodontic services than almost every other state combined, the state said it was clear that claims were being rubber-stamped.

Officials had no choice

Officials started working on a transition in 2011, bringing on a procurement consulting firm and issuing three separate requests for information to get feedback from interested vendors.

It did not officially fire Xerox, however, drawing widespread criticism. Finally, last May the state canceled the contract and announced a lawsuit that is expected to drag on for years.

Goodman said officials had no choice but to hire Accenture.

"This was like switching drivers in the middle of the race," she said. "Accenture was already responsible for the engine and was the only realistic option."

Company spokesman Jim McAvoy agreed, noting Accenture in 2013 took over the troubled website of the federal health care law and succeeded.

He also said the company was running Medicaid claims for at least one other state. Later, when told that was not accurate, he said he had misspoken.

Another option for the state would have been Hewlett-Packard, which holds contracts to run Medicaid claims processing in 19 states, used to run Texas's system and bid on the project in 2008.

A Hewlett-Packard spokesman declined comment.

Among the experts who questioned the length of the contract was Jim Verdier, who used to run Indiana's Medicaid program and now works at policy research firm Mathematica. He said competitive bidding processes usually do not last longer than two years.

Matt Salo, executive director of the National Association of Medicaid Directors, said procurement lengths vary greatly, but he said he did not know of one lasting three years.

State Sen. Charles Schwertner, R-Georgetown, who chairs the Health and Human Services Committee, said in a statement that he understood the need to continue Medicaid services but had questions about why an "emergency contract" would be needed for three years.

Critics also questioned the reduction in performance metrics.

"It's saying, 'Xerox, you weren't doing this list of things A-Z.' We're going to fire you and hire somebody who doesn't have to do A-Z, and then pay them more," said Jason Ray, an attorney who is representing several Medicaid providers who are fighting allegations of fraud.

Goodman insisted that the contract with Accenture holds the company to a high standard of performance.

"The Xerox contract had duplicative, confusing, and difficult to measure performance standards that were hard to enforce," she said, adding that Accenture has reduced wait times and streamlined the provider enrollment process so that pending enrollments have dropped 44 percent.

Still, Sen. Carlos Uresti said he did not understand the logic of reducing performance metrics in a problematic contract.

"Why in the world would you do that?" said Uresti, D-San Antonio. "It just raises a lot of red flags."